One of the fastest growing bank businesses of the decade has largely occurred outside the banking system. Comercial check cashing establishments - today a $900-million industry with some 5,000 outlets nationwide - may be gaining at the expense of banks and thrifts, which generally have been downsizing their branch network.

Check cashers still get a lot of their business from the so-called unbanked - people, many of them poor, transient or both, who manage their financial affairs without a bank or some other established institution. But the greatest expansion for check cashers has taken place in suburban and rural locales, and two-thirds their customers also have a banking relationship.

[Expanded Picture]"That's been a radical change in the last decade," says Stephen H. Wolf, treasurer of Syosset, NY-based Pay-O-Matic Corp., which operates more than 100 check cashing outlets in the metropolitan New York area. As banks go about closing branches and raising fees, Wolf says that many, consumers are willing to pay for convenience and quick access to their money. "That has driven more people out of using banks as part of their day-to-day transactions," he says.

Check cashing operations generally date back to the mid-1940s, and Wolf s Pay-O-Matic opened its first outlet in 1950. Check cashers in New York State may charge up to 1.1% of the value of the check, while the average fee in the rest of the country is 2%. Most outlets also sell money orders and some even take payments for utility bills and distribute food stamps. "It is a nickel-and-dime business, a volume business," Wolf explains. "The key in this business is location. Build it and they will come, as they say in the movies."

Indeed, it would seem that the growth of check cashing operations has given at least a few banks some second thoughts. Wolf says that in New York City, both Chemical Banking Corp. and East New York Savings Bank have experimented with outlets of their own. Chemical has set up separate check cashing counters inside a few of its branches, while East New York Savings had been running three outlets under the name "Cash-and-Go." Chemical did not respond to requests for information about its experiment, while East New York confirmed its involvement but declined further comment.

Wolf questions whether commercial banks can make much money at this sort of thing, although he probably does not like to see banks encroaching on his traditional turf. And that may account for this suggestion of the following: What if a bank formed an alliance with a check casher like Pay-O-Matic to offer limited banking services in poor neighborhoods as part of its compliance with the Community Reinvestment Act? One possibility would he to subsidize the check casher's costs for handling government checks - but the stores also could be operated as limited branches of the bank itself. "Run the bank's flag up our pole, so-to-speak," Wolf says. "There's banking business to be done in these neighborhoods."

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